So, in Q4, the average price was $208,000. Here are the number of communities with various lowest asking prices :
Thanks KC for all the research and enlightenment!
Saul
Saul,
I live in the Seattle area. That LGIH might sell six homes a month in this area @ $375K would not surprise me in the least. What I’m not too sure about is that they can build six month in three ASCs: Summerwood Park, Evergreen Point, Ridgeview Estates (and Gregory Park - planned).
There is a housing shortage in this area. Resale homes typically sell for several percent above asking price. Rents have sky-rocketed, folks are motivated to buy. The only down-side (my perspective) to LGIH in this area is location. The ASCs LGIH have are not convenient to Seattle (we have some of the worst traffic in the country). No one wants to spend 2 - 3 hours or more of their day getting to/from home and work.
From LGIH press release:
Summerwood Park offers new homes with three to five bedrooms and up to three bathrooms. Each home includes a chef-ready kitchen with stainless steel appliances, large master suites and spacious patios perfect for entertaining. A Grand Opening event will be held on Saturday, June 11, 2016 where one-day only specials and incentives will be offered.
This brief description was posted for Summerwood Park, but could be applied to any LGIH community.
“Summerwood Park” is a bit southwest of Puyallup town center. But Puyallup is a small town, not a lot of employment opportunities. Closest city of size is Tacoma, at least an hour from these homes. Seattle can be a much longer drive due to traffic, 2 - 3 hours during rush hour.
“Evergreen Pointe” is not far from Evergreen State College and convenient to Olympia (state capitol). I actually owned a home near there in the 2000s while my daughter was going to school at Evergreen. I sold it in 2008 just before the bottom fell out. Olympia is also a pretty small town. Again, closest city of size is Tacoma, a good 45 minutes to an hour drive.
“Ridgeview Estates” is close to Spanaway, another small town, however, this ASC is more convenient to Tacoma than the other two, maybe 30 - 45 minutes. But Spanaway is not a desireable place to live. Tap water is brown and local, privately held water company basically tells customers to go screw themselves. Bottoms up.
In general, Tacoma to Seattle will add about 40 minutes to each commute, but it can be much longer due to traffic and specific destination.
“Gregory Park” the planned area is north of Seattle (the other three are south) near Arlington. Arlington is also a small town, the closest city of size is Everett, a good 30 minute drive, but longer during rush hour.
I read some on-line reviews of the LGI Homes (not clear if posted by buyers or just lookers). All over the place from major complaints to very happy buyers. On a national basis, overall reviews run pretty positive. However, very lukewarm in the Seattle area. “Houses are too close together.” “Lots are on clay.” Implication is nothing will grow and drainage could easily be a problem. The reviews classed by type of contact run from quite positive for sales reps to somewhat negative when it comes to addressing warranty complaints (there’s a difference between providing and 10-year warranty in writing and actually supporting it with service). In general, the lowest rating goes to construction and finishing details. Foundation problems, drainage problems, roofing problems, paint problems, plumbing problems, electrical problems, etc. are all common complaints.
My guess (and it is a guess) is that builders are having trouble finding seasoned, skilled construction labor. This would apply more to new builders in an area than builders who have been in an area for years. And especially with the new political atmosphere a lot of construction workers have just voted with their feet and left the country (along with farm workers leaving in droves. It’s no secret that the illegal immigration to America is negative with more folks leaving than entering the country. This has been true for more than a couple of years, but it has taken a quantum leap since the election). Even though construction pay is pretty good, an untrained citizen is incapable of doing a quality job as compared to a skilled, experienced “illegal alien.” This is of course exacerbated in areas like Puget Sound with high demand and a housing shortage.
Just one more observation, some folks seem to think that interest rates are a big deal in terms of addressable market. In my opinion (having once sold residential real estate) it is largely irrelevant. People don’t care directly about interest payments. They do care about total monthly payment (mortgage, interest and tax/insurance escrow). That’s the only number that makes any difference. Also, the first-time buyer’s market is not a fixed band determined by local rent rates. If the floor moves up (as it might with increasing interest), the ceiling also moves up. People paying higher rents may more easily be converted to buyers and people looking for their second home may be more likely to buy a new home than a previously owned home. Unless (or until) mortgage interest rates are double digit I don’t think LGIH needs to worry about their market. They appear to have bigger worries when it comes to community location along with rate and quality of construction.
I’m still long LGIH, but growing increasingly impatient and sceptical about their ability to achieve their stated goals.
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I read the transcript of the call and the information that Eric and the CFO provided on the call mirrors what I forecasted in the model.
I now believe that the low estimate of 4534 homes closed in 2017 is too low and is highly unlikely unless something really shocks the market or they have problems building out the inventory.
I think that the 2017 home sale closings will look something like this:
JAN 172 result in
FEB 224 result in
MAR 365 result in
APR 365 result in
MAY 452 my forecast
JUN 457 my forecast
JUL 462 my forecast
AUG 467 my forecast
SEP 473 my forecast
OCT 478 my forecast
NOV 483 my forecast
DEC 488 my forecast
TOTAL 4886
Eric said they expect to close 450-500 in May and 450 in each of June and July. The CFO also said that 5 of the communities that they will add won’t contribute to closings until 2018 so if that comes to be then my model would predicts 35 fewer homes closed, so 4851 instead of 4886.
The resulting revenue would be $215K (midpoint of guidance) times 4886 = $1.05B in revenue which would be a 25.3% increase in revenue.
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